Zhixun Finance and Economics APP learned that Guosen Securities issued a research report stating that, according to incomplete statistics, China currently has an existing SAF production capacity of 0.35 million tons/year, with a planned capacity of 3.53 million tons/year. Since companies producing second-generation biodiesel (especially hydrocarbon-based biodiesel, HVO) generally also have the capability to convert to SAF production, they can adjust their product lines according to market demand. With high demand for SAF, related companies are expected to benefit. Due to the industrial blend oil, the main raw material for SAF production, having its export tax rebate canceled, the enthusiasm of export enterprises will be affected, and domestic SAF and biodiesel production companies are expected to have easier access to raw materials.

Guosen Securities' main points are as follows:

Event: On November 15, 2024, the Ministry of Finance and the State Taxation Administration issued a notice "Announcement on Adjusting the Export Tax Rebate Policy", announcing that starting from December 1, 2024, the export tax rebate for chemically modified animal, vegetable, or microbial oils and fats will be canceled.

Sustainable Aviation Fuel (SAF) can significantly reduce carbon emissions in the aviation sector, and HEFA is the mainstream production process.

With the future development of the aviation industry, the absolute amount and proportion of greenhouse gas emissions it generates are expected to continue to increase, making carbon reduction urgent. Among the many measures to reduce carbon emissions in the aviation sector, increasing the proportion of SAF use is currently the most practical solution. There are eight recognized SAF technology routes, with the HEFA route's product, Hydroprocessed Esters and Fatty Acids (HVO), having a market share of over 95% in the sustainable aviation fuel sector. It is estimated that by 2030, globally, the production technology route for SAF will still be dominated by the HEFA process.

The demand for SAF is currently mainly driven by policies. In Europe, the proportion of SAF in aviation kerosene is clearly defined, and many countries are gradually following suit. In 2023, the European Union passed the "ReFuelEU Aviation Regulation", which mandates that from 2025, a certain proportion of SAF must be blended into the aviation fuel used at EU airports, with specific requirements for the technology routes adopted for SAF. The long-term goal is that by no later than 2050, the proportion of SAF blending must reach 63%. The United States, Japan, and South Korea have all enacted relevant policies to promote SAF use. In September 2024, China's National Development and Reform Commission and Civil Aviation Administration officially launched the SAF application pilot. According to IATA estimates, the demand for SAF in 2050 will reach 0.358 billion tons, accounting for 65% of total fuel demand.

Europe and the United States are the centralized regions for SAF production, and China has huge potential for SAF production.

In Europe, there are currently at least 8 existing factory facilities that can be used to produce SAF, with over 20 new or expanded projects in planning (including 5 demonstration projects). By 2025, the HEFA route capacity can reach 7.2 million tons, with the highest capacity producing up to 3 million tons of SAF per year.

According to incomplete statistics, China currently has an existing SAF production capacity of 0.35 million tons per year, with a planned capacity of 3.53 million tons per year. Since companies producing second-generation biofuels (especially hydrocarbon-based biofuels, HVO) generally have the capability to switch to SAF production based on market demand, companies are expected to benefit from high SAF demand. With the cancellation of export tax rebates for industrial mixed oils, export enterprises' enthusiasm may be affected, making it easier for domestic SAF and biodiesel production enterprises to obtain raw materials and benefit from domestic SAF production enterprises.

Symbol recommendation: Excellence Environmental is recommended, as the company is a leading domestic biodiesel company with a production capacity of 0.5 million tons, and newly added second-generation biodiesel production capacity of 0.1 million tons per year. It is also suggested to pay attention to Zhejiang Jiaao Enprotech Stock (603882.SH), a waste fat resource utilization enterprise with significant influence in the Yangtze River Delta region. The company currently has a biodiesel production capacity of 0.3 million tons and has actively invested in a 0.5 million tons per year SAF production line. After the production line is operational, the company is expected to become a leading SAF company.

Risk warning: Risks include a significant drop in sustainable aviation fuel (SAF) prices; lower-than-expected demand for SAF in the European Union; lower-than-expected construction and deployment of second-generation biodiesel and SAF production capacities in China; risks related to changes in SAF policies in the European Union and China.